Deloitte: Awaiting for a new peak in NPLs in Europe

B2H GrowthBanks are facing potential increases in non-performing loans (NPLs) and need to get ahead of the issue by focusing on their accumulated portfolios, noted the latest annual deleveraging report of Deloitte. At the same time investors in NPL expect a gradual rise in activity and increasing volume of the deals in the next few years. 

Aftermath of the measures 

The average NPL ratio among banks, supervised by European Banking Authority (EBA), has continued to fall to 2.6% at the end of 2020. So, when the moratorium and support measures expirе, NPLs are expected to reach a peak, unseen since the great financial crisis. In one of the scenarios, prepared by European Central Bank (ECB), the forecast is about €1.4 billion NPLs, which will be €200 higher than the previous peak in 2015, shows the report. 

The Deloitte annual report looks at the key sales of NPL portfolios and possible trends in Europe. The COVID-19 pandemic cast a shadow over 2020 not only on the health of people, but also on the economic and societal challenges. The restricting measures brought the portfolio market into deep freeze  in the first half of 2020, with some markets renewing deal activity in the second half of the year (see the chart below). It was driven largely by government guaranteed NPL securitisation schemes.

The Bulgarian situation 

Asset quality indicators improved significantly in the previous years in both the retail and corporate segments, noted the experts of Deloitte. It is due mainly to loan restructuring and write-offs mandated by the Bulgarian National Bank (BNB) and a comprehensive asset quality review in 2019.

Despite the pandemic, the positive trend of declining NPL ratios continued in 2020, reflecting support measures, loan moratoria and regulatory forbearance, as well as an increase in total lending. According to Q4 2020 data, the NPL ratio fell to 7%, but it is likely to increase in 2021. The reasons – relief measures are gradually withdrawn, end of the loan moratoria, potentially higher interest rates for the new clients and tightened credit conditions in general. The total volume of NPLs has remained relatively flat, at €2.1bn.

Bulgaria is among the countries with medium activity in terms of NPL transactions, similar to the most part of Europe. Experts expect an increase in the level of assigned receivables, especially in the countries of SEE, to be dominated by the sales of unsecured retail portfolios. 

In 2020 NPL deal volumes dropped 60%, according to the report. Italy and Greece were the leading European countries for NPL transactions, using government guaranteed NPL securitization schemes. In Greece the transactions amounted to €12.4 billion, and in Italy – €44 billion.